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Asymmetric Regulation and Incentives for Innovation

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  • Lyon, Thomas P
  • Huang, Haizou

Abstract

Under asymmetric regulation, different firms in the same industry are subjected to different levels of regulatory restraint. We analyze the nature of innovation rivalry in such an industry, emphasizing that a rival may be able to inexpensively imitate an innovator's successful new technology. Although asymmetric regulation may slow the industry-wide pace of innovation, it does not necessarily do so. In fact, by weakening incentive to imitate, regulation may make an unregulated entrant's innovation profitable, thereby accelerating innovation. Conversely, giving the regulated firm incentives may backfire by producing either excessive or insufficient innovation; these negative outcomes are more likely the greater the cost-reducing potential offered by the new technology. Copyright 1995 by Oxford University Press.

Suggested Citation

  • Lyon, Thomas P & Huang, Haizou, 1995. "Asymmetric Regulation and Incentives for Innovation," Industrial and Corporate Change, Oxford University Press, vol. 4(4), pages 769-776.
  • Handle: RePEc:oup:indcch:v:4:y:1995:i:4:p:769-76
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    Cited by:

    1. James E. Prieger, 2005. "Endogenous Regulatory Delay and the Timing of Product Innovation," Working Papers 54, University of California, Davis, Department of Economics.
    2. James Prieger, 2008. "Product innovation, signaling, and endogenous regulatory delay," Journal of Regulatory Economics, Springer, vol. 34(2), pages 95-118, October.
    3. James E. Prieger, 2003. "The Timing of Product Innovation and Regulatory Delay," Working Papers 19, University of California, Davis, Department of Economics.
    4. Ricardo Paredes, 2002. "A further step to deregulation, or the risk to destroy the incumbent: Chile’s Local Telephony Market," Working Papers wp194, University of Chile, Department of Economics.
    5. Prieger, James E., 2007. "Regulatory delay and the timing of product innovation," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 219-236, April.

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